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Richard L. Podos

Mr. Podos, 50, is the president and chief executive of Lance Capital, a company based in New York that provides funding for commercial real estate tenant improvement projects. Before founding the company in 2004, Mr. Podos worked at the Equis Corporation.

Interview conducted and condensed by

VIVIAN MARINO

Q. How much of your business is in the New York area?

A. I’d say 25 to 30 percent. Probably the two deals we’re best known for in New York were both with the City of New York as the tenant. One was for 400,000 square feet in Brooklyn, with GFI as the developer; and then there was a deal in the Bronx, for 200,000 square feet, with Taconic Investment as the developer.

Both deals were for the Human Resources Administration. The City of New York has been undergoing a program to consolidate its leases to reduce its footprint, and in the process the city doesn’t want to use its own capital.

Q. How many deals are you working on right now?

A. Thirty plus.

Q. How much do you lend out per year?

A. Probably about $200 million — and growing. Five years ago we did about $100 million.

A. $30 million. The largest was $800 million and the smallest we’ll do is $5 million.

Q. Where do you get the funds to lend out?

A. We use some of our own funds, but we mostly syndicate out into the private-placement fixed-income market, based on the credit of the tenant. We do deal-by-deal syndications. The bonds are bought mostly by major insurance companies and pension funds. It’s all institutional. Typically the minimum purchase is $1 million.

Q. What kinds of returns do these private bonds get?

A. It depends on the underlying credit of the tenant, but typically our loans are in the 4 to 5 percent range.

To get tenant improvement money in the 4 percent range is, frankly, prior to our company, unheard-of. The typical amount landlords will lend to the tenant in the lease is 8 to 10 percent. What we’re doing is directly tapping into the credit of the tenant and that’s why we can do this deal so inexpensively.

Photo

Mr. PodosCredit
Chang W. Lee/The New York Times

We generally tie the duration of the bond to the term of the lease or contract. The bonds are not callable. They are, however, cancelable with a small prepayment penalty.

Q. Are the borrowers who come to you typically turned down by banks?

A. Yeah, typically. That’s part of the inefficiency. And what’s happened is over time the cost of construction keeps rising and the commercial real estate finance industry has put a cap on tenant improvements worldwide. In certain places banks won’t put up any money for tenant improvements. It’s all up to the tenant, and tenants don’t want to do it because they want to preserve their capital.

We’re higher than a senior loan, but a senior loan has the building as collateral. So we’re much more comparable to mezzanine debt and we’re way cheaper than mezzanine debt, which is going to be in the 8 to 10 percent range.

Q. How do you make money on these deals?

A. We charge an upfront structuring fee — it’s anywhere from 1 to 4 percent, depending on how complex the deal is — and then we invest in the bonds ourselves.

A. We’ve never had a default. We almost exclusively do investment-grade credits, so triple-B-minus and above.

Q. Many of the projects you finance are for tenant spaces. Do you fund many larger projects?

A. We’ll also do a full building, especially when it’s tenant improvement-intensive. A couple of years ago we did a $105 million deal in Connecticut.

Q. Do you ever finance ground-up development?

A. We can do that too. But our specialty is renovations — and now with a big focus on energy efficiency and sustainability. We fund LEED certification.

Q. Is this where you see your company in the next five to 10 years?

A. We think that the energy efficiency part of our business is going to become the dominant part of our business. We have $2 billion of deals outstanding right now — we haven’t closed any of those deals yet — and we think there’s more.

We’re going to become a $1 billion-plus-a-year company. I think we’re going to be establishing several international offices in Europe and Asia primarily.